On 28 March 2019, the Competition and Markets Authority launched an in-depth market investigation into the UK funeral sector. This will involve a detailed review and scrutiny of the sector and include many of its key players.
Following an interim report published in November 2018 and subsequent consultation, the CMA remains concerned with competition in the funeral market which it believes merits closer examination. In particular, the CMA’s initial market study indicated that price rises in the funeral sector have been above inflation for well over a decade. This includes both prices for funeral director services and crematoria services. In the CMA’s view, the scale of these price rises does not currently appear to be justified by cost increases or quality improvements.
CMA’s market study
The CMA’s initial market study report found that people generally spend between £3,000 and £5,000 organising a funeral, and the price of the essential elements has increased by more than two-thirds in the last 10 years, almost 3 times the rate of inflation:
- Customers could save over £1,000 by shopping around. However, the CMA recognised that people arranging a funeral are usually distressed and often not in a position to do so. This makes it easier for some funeral directors to charge higher prices. Prices are also often not available online, making it difficult for customers to compare options.
- While some smaller funeral directors have sought to keep their prices low, other providers have implemented steady year-on-year price increases. Some suppliers have now introduced ‘low-cost’ funeral options, but the CMA does not consider that this goes far enough to make up for years of above inflation price rises. The CMA’s evidence also indicates that most people who organise a funeral remain extremely vulnerable to exploitation and future rises in charges.
The CMA found that cremations account for 77% of funerals although there are often limited choices for most people in their local area and fees charged by crematoria have increased by 84% on average in the past 10 years, more than 3 times the rate of inflation.
The CMA has concluded that an in-depth market investigation is required to fully consider the dynamics of competition and whether it may be necessary to impose remedies to protect consumers of funeral services.
The CMA has published its “terms of reference” which state that the market investigation will consider the supply of funerals and “related goods and services” in the United Kingdom as exist in connection with: (a) the supply of services by funeral directors at the point of need; and (b) the supply of crematoria services. The investigation excludes the provision of pre-paid funeral plans, which is currently being separately reviewed by the Treasury with a view to designing a more appropriate regulatory framework.
We would expect the CMA will now begin sending information requests to funeral businesses for off-the-shelf information (such as market brochures, company accounts) and subsequently detailed operating and financial information, often with relatively short timelines for submission. Businesses should review their information before submission, to understand what their information may reveal in competition law terms and to be able to explain their position and the operation of the market to the CMA. The CMA welcomes constructive dialogue with operators and key stakeholders, which is an opportunity to influence the CMA’s thinking.
The CMA will also publish details in an “issues statement” outlining the proposed focus of its investigation in more detail.
Under statutory rules, the CMA should normally complete its market study within 18 months. Following this, the CMA has wide-ranging powers to make changes in the sector including:
- making recommendations to Government on legislative and other regulatory reforms;
- requiring companies to provide more information to their customers (perhaps online);
- taking measures to promote online comparisons of funeral prices;
- prohibiting certain fee structures; and/or
- taking consumer or competition enforcement action in relation to any suspected infringements of consumer or competition law.
A market investigation represents an opportunity to influence future regulation and the shape of an industry. It also provides a way to raise any concerns which smaller firms may have as regards their ability to compete and grow in the market.
The process involves a detailed legal and economic assessment including direct engagement by the CMA with major funeral suppliers and other market participants. The CMA has extensive information gathering powers backed by the ability to issue fines for failure to comply. The outcomes of any market investigation can be potentially very significant for the business models of suppliers and the commercial terms they offer. Firms will no doubt want to be on the front foot armed with appropriate legal and economic analysis to support their position.
The Competition team at Walker Morris has extensive experience in assisting companies involved in market investigations by the CMA. If you would like further information on how Walker Morris may be able to assist you, please contact any member of the Competition Team listed below.